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OSI agrees to a higher offer

A bump of 3 percent comes as shareholders balk for a third time at a previous price.

By Scott Barancik, Times Staff Writer
Published May 23, 2007

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OSI Restaurant Partners failed a third time Tuesday to win shareholder support of a $40-per-share buyout deal, but its acquirer's offer to raise the bid price by 3 percent may be enough to secure victory next month.

Tampa-based OSI, whose eight chains include Outback Steakhouse and Carrabba's Italian Grill, said that its board had unanimously accepted a revised offer of $41.15 per share from a management-led group that included private-equity funds Bain Capital Partners and Catterton Management. The suitors' resistance to sweetening the initial $3.2-billion offer melted after OSI had to postpone a third straight shareholder meeting for lack of majority support.

As a gesture of good faith, OSI said that insiders who are part of the acquisition group - including chief executive Bill Allen and co-founders Chris Sullivan, Bob Basham and Tim Gannon -would still receive just $40 per share.

"This turns out to be just a great result for the public shareholders, " said Paul Geller, whose Boca Raton law firm sued OSI over the buyout deal but has a tentative settlement with the company. "There's no doubt in my mind that Bain is paying more for this company than they wanted."

OSI's stock rose 53 cents per share Tuesday to close at $40.94, just under the revised offer.

If shareholders approve the new price at a rescheduled meeting June 5, it'll be the end of a grueling battle that began almost the moment OSI announced the deal in November.

Geller's suit, on behalf of a disgruntled pension fund, was filed days later in Hillsborough County court, and a similar suit soon followed in Delaware. A number of institutional shareholders and Wall Street analysts quickly concluded that the $40 offer was low and that the OSI insiders who would personally rake in $400-million from the deal - as well as lucrative contracts with the acquirer - may have unduly influenced the board's decisionmaking.

Even after two proxy-advice firms tepidly endorsed the deal for their mutual fund and pension fund clients, OSI had to cancel a May 8 shareholder meeting because it lacked the needed votes. Subsequent meetings scheduled for May 15 and Tuesday were also postponed.

Several analysts said Tuesday that the $41.15 per share offer would likely cinch the deal for OSI and its acquirer. The buyers wouldn't have set such a specific price if they hadn't already cleared it with key shareholders, they speculated. Furthermore, RBC Capital Markets analyst Larry Miller told Forbes.com, "This may be the 'moral victory' that many investors that were unhappy with the merger process were seeking."

That may not be the only reason shareholders would settle for a new price that, after factoring in OSI's promise to skip a 13-cents-per-share quarterly dividend, would squeeze less than $100-million more from its acquirers.

Chris Young, director of mergers-and-acquisitions research at proxy-advice firm Institutional Shareholder Services, said the boost may well be aimed not at long-term investors but merger arbitragers, who buy shares after a deal is announced in hopes of capitalizing on the difference between the buyout price and the market price.

"You have to think from the perspective that many of the current owners have only owned the stock for a period of weeks, " Young said, and bought it mostly with borrowed funds. "To them, a 3 percent bump is significant on an annualized basis."

Fast Facts:

New offer, voteWhat happened: Outback Steakhouse parent OSI Restaurant Partners accepted a sweetened offer to sell the company.What's next: OSI shareholders will vote June 5 on the new bid of $41.15 per share.